First Resources - Maybank Kim Eng 2016-07-27: Expect stronger QoQ results

FIRST RESOURCES LIMITED EB5.SI

First Resources (FR SP) - Expect stronger QoQ results

After a dismal 1Q16 core PATMI of USD5m, we expect FR to post higher 2Q16 core PATMI of ~USD20m on higher CPO ASP achieved and output.
But results could still be below expectations as 2Q16 output remains sluggish. Still, we believe short term negatives are priced in.
Taking a longer term view, FR offers a good 3-year forward FFB output CAGR of 10%.

Last night, FR announced its 2Q16 FFB nucleus output of 477,727 MT (- 16% YoY, +9% QoQ), bringing 1H16 FFB output to 917,038 MT (-16% YoY).
1H16 met just 37% of our full year forecasts, below expectations. The lagged effect from the dry spell experienced in 3Q15 hurt FR’s group FFB yield in 2Q16 as it contracted 23% YoY to 3.4t/ha.

In 2Q16, MPOB’s spot CPO price averaged USD650/t (+8% YoY, +13% QoQ). Taking into account the USD50/t CPO export levy imposed by the Indonesian government since 16 Jul 2015, the net CPO price received by FR will likely be flattish YoY but 26% higher QoQ.
Given the improved QoQ output, we estimate FR to report 2Q16 core PATMI of ~USD20m (1Q16: USD5m), though this would represent just about 17% of our full- year earnings estimates.

We have probably witnessed the worst quarterly YoY decline in 1H16 as the lagged impact of El Nino typically peaks 6-9 months from the last drought.
Although we expect significantly better HoH output in 2H16, there is still a risk that our -1% FFB output growth for 2016 (in line with management guidance) may not be achieved if production recovery in 2H16 turns up slower than anticipated.
Nonetheless, we believe the negatives have been largely priced in given recent sell down on the stock.
FR is a BUY; our TP is based on unchanged 17x 2016 PER (+0.5SD of historical mean for this sector bellwether).

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-15

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.70 Down 2.08